Ragab v. Muhammad Howard, Individually & in His Capacity Partners, Inc., Civil Action No. 15-cv-00220-WYD-MJW

• Decision Date: 02 November 2015
• Docket Number: Civil Action No. 15-cv-00220-WYD-MJW
• Parties: SAMI RAGAB, an individual, Plaintiff, v. MUHAMMAD HOWARD, individually and in his capacity as owner, partner, and corporate officer; and ULTEGRA FINANCIAL PARTNERS, INC., a Colorado corporation; and SEED CONSULTING, LLC, d/b/a SEED CAPITAL, a Nevada limited liability company, Defendants.
• Court: U.S. District Court — District of Colorado

SAMI RAGAB, an individual, Plaintiff, v. MUHAMMAD HOWARD, individually and in hiscapacity as owner, partner, and corporate officer;and ULTEGRA FINANCIAL PARTNERS, INC.,a Colorado corporation; and SEED CONSULTING, LLC,d/b/a SEED CAPITAL, a Nevada limited liability company, Defendants.

Civil Action No. 15-cv-00220-WYD-MJW

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

November 2, 2015

Senior Judge Wiley Y. Daniel

ORDER

I. INTRODUCTION

THIS MATTER is before the Court on Defendants Muhammad Howard ["Howard"] and Ultegra Financial Partners, Inc.'s ["Ultegra"] [collectively "the Ultegra Defendants"] Motion to Compel Arbitration and Motion to Dismiss Plaintiff's Claims or, in the Alternative, Stay Plaintiff's Claims filed April 13, 2015. A response was filed on May 5, 2015, a reply was filed on May 19, 2015, and a surreply was filed with leave of the Court on June 18, 2015. On October 9, 2015, Magistrate Judge Watanabe granted the Ultegra Defendants' motion to stay discovery pending a ruling on the motion to compel arbitration.

Additionally, the parties were asked to brief the impact of an Amended Complaint filed on June 24, 2015, that added Defendant Clive Funding Inc. ["Clive Funding"]. Briefs were filed on this issue on July 7, 2015. On October 14, 2015, Defendant Clive Funding filed a Motion to Compel Arbitration and Motion to Dismiss Plaintiff's Claims Pursuant to Rule 12(b)(1) or, in the Alternative, Stay Plaintiff's Claims. It also filed a motion to stay discovery, which was granted on October 22, 2015. Thus, discovery is currently stayed as to all Defendants except Seed Consulting, LLC ["Seed Consulting"] pending rulings on the motions to compel arbitration.

The Ultegra Defendants' motion notes that Plaintiff entered into several agreements, all of which contained provisions requiring the parties to submit claims and disputes between them to binding arbitration. (Am. Motion to Compel Arbitration and Mot. to Dismiss Pl.'s Claims or, in the Alternative, Stay Pl.'s Claims ["Am. Mot."], Ex. A, Howard Decl., ¶¶ 1-8) (verifying the agreements attached as Exhibits B through H to the motion.) The motion further asserts that all of Plaintiff's claims, including alleged violations of the Credit Repair Organization Act, Colorado Credit Services Organization Act, and Colorado Uniform Debt-Management Services Act, and negligent misrepresentation, fraudulent misrepresentation, and piercing the corporate veil, fall within the broad scope of the arbitration provisions in the written agreements. Thus, the Ultegra Defendants request that the Court compel arbitration of this dispute and dismiss Plaintiff's claims under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction or, alternatively, stay these proceedings pending arbitration.

Clive Funding's motion incorporates the arguments made in the Ultegra Defendants' motion, and asserts that the only places where Clive is mentioned in the Amended Complaint are in conjunction with the Ultegra Defendants. Accordingly, ifarbitration is compelled with respect to Ultegra and Howard, Clive Funding asserts arbitration should also be compelled with respect to it.

II. FACTS

As referenced in the Amended Complaint, on or about March 11, 2013, Ultegra and Phoneless, LLC ["Phoneless"], in which Plaintiff was a member, entered into a Consulting Agreement. (See Am. Compl., Ex. 1, unsigned copy of the Agreement; Am. Mot., Ex. B.) Although the preamble on page one of the Consulting Agreement identifies Phoneless as the "Client", the signature block on the final page of the Agreement identified the "Client" as Sami Ragab, the Plaintiff. (Id. at pp. 1, 6.) The Consulting Agreement states:

7.8 Enforcement and Arbitration. Actions to enforce payment of amounts due under this Agreement, at the option of Consultant, and actions for injunctive relief may be brought in a court of competent jurisdiction. If it is necessary to Consultant to seek injunctive relief or to collect any fees, costs or other charges due to the Consultant by the Client, the Client agrees to pay the Consultant's attorney 's fees, costs and other charges incurred in collecting the amount owed. The Client further authorizes the filing of charging and/or retaining liens, as applicable and to the extent such authorization is necessary.

7.8.1. Arbitration. Any other question, disagreement, difference, or controversy which arises among the parties hereto, with respect to this Agreement, the Services or any other manner, shall be submitted to and determined by binding arbitration. All arbitration under this Section 12.13 [sic] shall proceed as follows: the parties in dispute shall agree on and appoint one neutral arbitrator within thirty days after a written request for arbitration has been given by one party to the other. If the parties do not agree and fail to appoint such neutral arbitrator within the thirty day period, the arbitrator shall be appointed by a court of competent jurisdiction of the State of Colorado, upon the application of either party. Except as set forth in this Agreement, each party shall pay their own attorneys' fees and costs related to such Arbitration. Subject to the provisions set forth within thisSection 12.13 [sic], the arbitration shall be governed by the Uniform Arbitration Act of 1975, C.R.S. § 13-22-201 et seq., as it exists on the effective date of this Agreement and it may be thereafter amended.

The Consulting Agreement concerned Ultegra's agreement to assist Plaintiff obtain financing and raise capital for Phoneless. (Mot. to Compel Arbitration, Ex. A at ¶¶ 1.1-1.3.) The Ultegra Defendants contend that the main thrust of the Complaint concerns Ultegra's conduct in assisting Plaintiff obtain financing and raise capital for Phoneless, including helping repair Plaintiff's credit so he could raise the capital he needed. (See Am. Compl., ¶¶ 13-51.) The Consulting Agreement contained a Personal Guarantee by Plaintiff in which he agreed and consented to all of the terms in the Agreement. (Id., ¶ 24, Am. Mot. to Compel Arbitration, Ex. B.)

A Membership Interest Purchase Agreement was also entered into, which according to the Ultegra Defendants was drafted by Plaintiff's attorney. While the Agreement states in the opening paragraph that it is entered into between Plaintiff and Ultegra, the Agreement is signed by Plaintiff, as the Seller, and Howard, as the Purchaser. (Am. Mot. to Compel Arbitration, Ex. C.) Paragraph 9 of the Membership Purchase Agreement contains an arbitration provision providing in pertinent part:

In the event a dispute arises over any matters arising out of or relating to the subject matter of this Purchase Agreement, which cannot be resolved by the parties hereto, then the existence of said dispute shall first be confirmed by written notice of the dispute by any such party to the other(s). ... If such dispute has not been resolved ... then said dispute shall be resolved by binding arbitration ...

The Membership Interest Purchase Agreement memorialized the Ultegra Defendants' agreement to purchase 50% of the membership interest in Phoneless inexchange for payment of $100.00 to Plaintiff. (Am. Mot., Ex. C at p. 1, Recitals and ¶ 1.) The motion notes that Plaintiff has made several allegations in his Complaint about the circumstances surrounding the Ultegra Defendants' purchase of 50% of Phoneless, and seeks damages in connection with his sale of the 50% interest to the Ultegra Defendants. (Am. Compl., ¶¶ 59, 63, 69, 74, 82, 90, 94, 99, 107, and 109.)

An Operating Agreement was also entered into by Plaintiff, the initial member of Phoneless, which again according to the Ultegra Defendants was drafted by Plaintiff's attorney. (Am. Mot., Ex. D.) Article XIII of the Operating Agreement, titled "Dispute Resolution", contains an arbitration agreement stating in pertinent part:

In the event a disagreement arises out of any matters arising out of or relating to the subject matter of this Agreement, which cannot be resolved by the majority vote of the Membership Interest, ... then said disagreement shall be resolved by binding arbitration, initiated by any Members, at Denver, Colorado, U.S.A., conducted by a sole arbitrator chosen by the American Arbitration Association ("AAA") and otherwise through and administered by the AAA pursuant to its then current Commercial Arbitration Rules.

(Id. at p. 9) (emphasis in original.) The First Amendment to the Operating Agreement formally made Ultegra a party to the Agreement. (Am. Mot., Ex. E.) It was signed by Howard.

The Operating Agreement and First Amendment thereto memorialized, among other things, the operational structure of the LLC and the obligations and rights of the members and the management of the LLC, including the obligation of Plaintiff to personally guarantee the initial $80,000.00 in capital raised for Phoneless. (Am. Mot., Exs. D and E at ¶¶ 7 and 16 (agreement to be bound by Operating Agreement and anyamendments thereto "without limitation")). The Ultegra Defendants assert that Plaintiff made several allegations in his Complaint concerning the operations of Phoneless, and the obligations and rights of the members and management of Phonless, including Plaintiff's agreement to personally guarantee the initial $80,000.00 in financing obtained for Phoneless and how the debt would be structured (Am. Compl., ¶¶ 18-21), and Ultegra's alleged obligations to provide funding and pay for debts incurred by Plaintiff (id., ¶¶ 36 and 42.)

Plaintiff and Ultegra also entered into an Assignment of Limited Liability Company Membership Interest ["Assignment"], which again was purportedly drafted by Plaintiff's attorney. (Am. Mot., Ex. F.) It was signed by Howard. The Assignment contains an arbitration provision at paragraph 6, stating in pertinent part:

In the event a disagreement arises out of any matters arising out of or relating to the subject matter of this Assignment, which cannot be resolved by the parties hereto, ... then said

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